Selina and Lam Lum own the award winning Taste of Asia restaurant in Sarasota, Florida. For three years, they leased the building where they ran the restaurant. When their landlord decided to sell, the Lums approached their local bank to help finance the purchase of the building but were declined because they couldn’t project sufficient cash flow. Six other Florida banks all gave the same answer: no.

Eventually, the Lums ended up getting an SBA 7a loan from CEI 7a Financing, a non-bank SBA lender, and they assumed ownership of the building. Without that loan, Selina and Lam would have been forced to relocate their family business and abandon a variety of capital improvements and brand equity that they built up over the years. What almost happened to the Lums reflects a larger pattern. Your zip code can impact how easy it is to get an SBA loan and the likelihood of the loan being repaid.

Want to know where your state ranks?

Based on data from 2006-2015 that we obtained directly from the Small Business Administration (SBA), we listed the best and worst states in terms of access to SBA loans, amount of funding, and repayment rates. Further below, we explain, no matter where you live, how to increase your chances of getting approved for an SBA loan.SmartBiz

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States Ranked By Access to and Amount of SBA Funding

*The number of small businesses eligible to receive SBA loans is the number of small businesses in the state multiplied by 3. This accounts for turnover of small businesses. We estimated that approximately 20 % of small businesses closed down and entered the market every year in each state from 2006-2015.

States Ranked by SBA Loan Repayment Rate

*Repayment rate is equal to the number of loans that were paid in full divided by the total number of loans excluding currently outstanding loans. We excluded currently outstanding loans because we don’t know if those loans will be paid back on time. Loans that weren’t paid in full were either charged off by the lender or settled with the lender for less than the amount owed.

Please email us if you would like access to the raw data we obtained from the SBA.

What We Can Learn From This Data

Overall Best State for SBA Loans: Vermont

It was difficult for us to rank the best state to get and repay SBA loans because there was no state that wowed us across all three measures: access to sba loans, average loan size, and repayment rate. However, Vermont performed the best out of all the states on these three counts.

In Vermont, 1.14 % of small businesses got SBA loans between 2006 and 2015. This was the sixth highest out of all states. While 1.14 % may seem like an incredibly small number, SBA loans are very difficult to qualify for, so only a very small fraction of businesses succeed. For Vermonters who got SBA loans, the average loan size was $ 153,740. This is a decent loan size, but other states such as George, South Carolina, and Alaska were the best in terms of loan size. The repayment rate in Vermont was excellent. Over 70 % of Vermont small businesses paid back their SBA loans on time, making this the fifth highest SBA repayment rate in the nation. Good job Vermont!

Overall Worst State for SBA Loans: Florida

Unfortunately, the Sunshine State didn’t fare so well in our rankings. Only 0.41 % of eligible small businesses in Florida were able to obtain SBA loans between 2006 and 2015 (only 3 other states were worse than this).  Florida’s repayment rate was very poor. Only about 40 % of Florida businesses that received an SBA loan paid it back on time. This means that, as a whole, Florida businesses struggled to repay their SBA loans. The one bright spot is average loan size, which was $299,996 in Florida.

Where Is it Easiest to Get an SBA Loan?

• Utah ranked # 1 for access to SBA loans. In Utah, over 2 % of eligible small businesses got an SBA loan. After Utah came Idaho and New Hampshire in the second and third spots. Vermont, our overall best state, came in sixth place for access to SBA funding. 1.14 % of Vermont small businesses received SBA loans.
• Georgia, South Carolina, and Alaska had the highest SBA loan sizes. Even if you qualify for an SBA loan, it won’t do you much good if you can’t get the amount of capital that you need. In these three states, the average loan size was over $370,000.

Where Is it Hardest to Get an SBA Loan?

• South Carolina, Tennessee, and Alabama were worst for access to SBA funding. Less than 0.40 % of businesses in these states received SBA loans between 2006 and 2015.
• Hawaii was the worst state for average loan size. On average, Hawaiian small businesses that received SBA loans got only $88,608. Hawaii is the only state where the average loan size was under $100,000.

Where Are SBA Loans Most Likely to Be Repaid?

• North Dakota, Montana, Wyoming, and South Dakota had the best SBA loan repayment rates. About three quarters of SBA loans given to businesses in these states were paid back on time. Vermont, our overall winner, also had a high repayment rate of 70 %, coming in at fifth place.

North Dakota, Montana, Wyoming, and South Dakota had some the best SBA loan repayment rates in the country. Larger economic trends could explain why. These 5 states are home to industries, such as gas and oil fracking, that helped them weather the economic crisis better than other states.

These states also have a tinier small business population and a smaller number of SBA loans. The smaller sample size makes it easier to achieve a better repayment rate. This could explain why smaller states, such as Maine and our overall winner Vermont, had good repayment rates.

Where Are SBA Loans Least Likely to Be Repaid?

• Florida had the worst SBA loan repayment rate. Only 40 % of SBA loans given to Florida residents between 2006 and 2015 were repaid on time.
• Along with Florida, Georgia, New Jersey, Nevada, and California rounded out the bottom five states for worst overall repayment rates.
• Among states with fewer than 10,000 loans, Georgia, Nevada, and Arizona had the worst repayment rates. More than half of the loans issued to these three states were not paid back on time. Given the small sample set, these numbers are especially troublesome.

Florida, California, and Nevada were in the bottom 5 for SBA loan repayment. These states were some of the hardest hit by the economic crisis and housing bubble. When you look at which states have had the highest mortgage default rates, you will see parallels with the data in this article. Small businesses in states like Florida may have had a harder time paying back their loans because they were also struggling with mortgages and other debt.

On a positive note, there are signs that things are turning around in these states for business owners. For example, Selina and Lam Lum applied to several Florida banks for an SBA loan but were denied because they couldn’t show sufficient cash flow. Finally, a non-bank lender, CEI 7a Financing, came to their rescue.

Lam Lum, chef at the Taste of Asia restaurant in Sarasota, FL. Lum and his wife Selina were rejected by 7 Florida banks before CEI 7a Financing finally approved them for an SBA loan.

How to Increase Your Chances of Getting an SBA Loan (Regardless of Zip Code)

SBA loans are attractive to small business owners throughout the country for their low interest rates and long repayment terms. They are one of the most affordable sources of capital for a small business.

Our recommended SBA loan provider is SmartBiz. They work with small businesses nationwide and make getting an SBA loan, typically a 2 or 3 month process, quick and easy. You can apply online for SBA 7a loans up to $350K, and if approved, get funding in as few as 7 days.

If you’d rather work with a local bank, we encourage you to find out if the bank is an SBA preferred lender (click here to see a list of preferred SBA lenders). Preferred lenders have a proven track record of helping small businesses get SBA loans and a streamlined application process. Alternatively, we recommend working with a non-bank lender such as CEI 7(a) Financing, which is one of fourteen nationwide non-bank lenders licensed to provide SBA loans. Non-bank lenders often work with small business owners who have been rejected by banks.

No matter where you live or where your business is located, there are steps you can take to improve your chances of qualifying for an SBA loan:

1. Improve your personal credit score – To qualify for an SBA loan, you generally need to have a personal credit score of 660 or higher. This is the single most important factor in getting approved. If you’re unsure of your credit score, click here to check for free.
2. Improve your business credit score – Every business has a credit score, and the higher your business credit score is, the more likely you are to qualify for an SBA loan. You check your business credit rating for free at Nav.
3. Increase revenues & profitability – Lenders want to work with financially strong businesses. Before applying for an SBA loan, we encourage you to get your business in the best financial shape.
4. Get enough collateral – The more collateral you can bring to the table, the higher chance you have of qualifying for an SBA loan. If your business that doesn’t have much collateral, you can pledge personal assets such as your home or car.
5. Pay off other debt – Lenders will check your business’ Debt Service Coverage Ratio (DSCR) before deciding whether to approve you for an SBA loan. DSCR measures your business’ capacity to repay debt. Your DSCR should generally be greater than 1.25 to qualify for an SBA loan.
6. Wait it out – In general, SBA loans go to businesses that have been operating for at least 2 years. It’s more difficult to get an SBA loan to start a new business or buy an existing business. For startups or to buy an existing business, lenders typically expect you to have previous experience in the industry and a 20 % down payment.

If your attempts to qualify for an SBA loan are unsuccessful, there are many alternatives to SBA loans for existing businesses and new businesses.

Bottom Line

Your zip code can make a difference when it comes to how easy it is to get an SBA loan, the amount of funding you get, and the likelihood that it will be paid back on time. However, no matter where you live, there are actionable steps you can take to get on track to qualify for an SBA loan.

SmartBiz is our recommended provider of SBA loans. You can get pre-approved for an SBA loan through SmartBiz in 5 minutes and receive funding in as few as 7 days.

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